The International Monetary Fund (IMF) on Wednesday significantly raised its forecast for Chinese economic growth while questioning the scale of Beijing’s support for export-oriented industries.
The IMF expects China’s economic growth rate to reach 5% this year and 4.5% in 2025.Six weeks ago forecastThe two-year growth figures were 0.4 percentage points higher.
Last year, China’s GDP grew by 5.2%.The economy is rebounding after nearly three years of strict epidemic prevention policies that stifled the economy. Many economists, including the IMF, had expected China’s economic growth to slow this year due to a severe contraction in the real estate market and slowing domestic consumption.
Yet despite a continued fall in property prices and sluggish retail sales growth, China’s economy still grew robustly in the first three months of this year, at an annual rate of about 6.6%, thanks to strong growth in exports and factory investment.
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The Chinese government is taking steps to address the housing crisis, but faces huge challenges. Years of overbuilding have left 4 million new apartments unsold, while conservative estimates suggest developers have sold but not completed as many as 10 million apartments.
Many owners of vacant investment condos find themselves with large loans that will be paid off for many years, but with little likelihood of significant appreciation in the value of the condo.
A plan unveiled this month that calls for local governments to buy up large numbers of vacant apartments and convert them into affordable housing has been met with skepticism by many analysts.
In addition to housing, China has also invested heavily in factories this year.leadingThe global market for everything from furniture to electric cars and solar panels.
IMF First Deputy Managing Director Gita Gopinath said at a press conference in Beijing on Wednesday that the upgrade to China’s economic growth forecast was “driven by strong GDP growth in the first quarter and recent policy measures,” especially moves to stabilize the real estate market.
She called on China to do more to address its housing market problems and warned that Beijing’s industrial measures could harm other countries.
“China’s use of industrial policies to support key industries may lead to misallocation of domestic resources and may affect trading partners,” Gopinath said, suggesting that China reduce these policies.
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In recent months, U.S. Treasury Secretary Janet Yellen has criticized China’s industrial strategy, warning against allowing China to boost exports to ease its domestic economic woes. She has also begun to rally international support for tariffs or other restrictions on cheap Chinese exports that could threaten Western industries and jobs.
President Biden announced this month that tariffs would be significantly increased on a range of Chinese imports, including electric vehicles and solar panels.
China’s top leader Xi JinpingexpressChina has enriched the global commodity supply and eased global inflation pressure
Last month, Yellen criticized the IMF for not questioning China’s manufacturing push, which she said had created overcapacity and led Chinese companies to sell goods overseas at rock-bottom prices.
Chinese officials rejected the term “overcapacity” as unfair. The IMF avoided the term in its statement on Wednesday, and Gopinath did not use it in her news conference.
The IMF recommended that China strengthen its social safety net, something analysts say is necessary to develop a stronger consumer economy and reduce its reliance on exports.
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Xi Jinping has always been cautious about increasing social spending. In a speech three years ago, he said: “We must not set too high a target or provide excessive guarantees, and we must resolutely prevent ourselves from falling into the trap of ‘welfareism’ that feeds lazy people.”
Growth is expected to remain subdued in the coming years as China’s labor force shrinks due to decades of a one-child policy and productivity gains slow as the country catches up with or surpasses the West in many technologies. The IMF forecast Wednesday that China’s growth rate will fall to 3.3% by 2029.
The trade dispute between the West and China comes at a particularly delicate time for the IMF, which provides loans at low interest rates to countries in financial distress, with its financial support coming from investments by its member countries.
The IMF was created after World War II and has long been dominated by Europe and the United States, which have provided a lot of money. But the IMF’s voting rights should depend to some extent on a country’s trade and foreign exchange reserves, as well as the size of its economy. China has the world’s largest trade and foreign exchange reserves and is seeking to gain corresponding influence in the IMF.
China’s leadership in trade and foreign exchange reserves is also part of an export drive that worries the West.
IMF First Deputy Managing Director Gopinath said the IMF’s top priority is to expand its lending capital base and it is seeking more investments from member countries to achieve this.